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Post By: admin December 27 2024

What is the Basic Tax Information That the Freezone Persons Should Be Aware Of?

The fiscal landscape of the UAE has drastically changed since the introduction of the corporate tax in 2023, particularly for businesses operating from the Free Zones. The idea was to encourage business in the UAE by leveraging 0% corporate tax for Qualifying Free Zone Persons (QFZPs) and 9% corporate tax on the non-qualifying income that exceeds AED 375,000. 

This structure aims to elevate the UAE’s stance as a global business hub while also aligning with international business standards. This has also led to the UAE becoming a top-tier region for business among 134 countries in recent times. 

This is all the more reason to keep up and stay informed with the tax information in the UAE, especially with regards to the Free Zones. We’ve brought together the basic tax information that you need to know in the UAE if you are a Free Zone person. Read ahead to know more. 

Who Are Free Zone Persons?

A juridical person who is registered, incorporated, or established in any of the free zones in the UAE can be known as a free zone person. 

If you have a registered branch of a parent foreign permanent establishment or even a domestic permanent establishment (parent entity based in the UAE itself) in any of the free zones, the qualification is still met. 

However, it has to be a juridical person. Non-juridical persons, like a natural person or any unincorporated partnership, are out of the question to be considered as a Free Zone person.

You can also read: Conditions for Qualifying Investment Fund Status under UAE CT

Basic Tax Information That Free Zone Persons Should Be Aware Of

There is some basic tax information that both qualifying and non-qualifying free zone persons should know, such as certain conditions to be met for the case of a qualifying free zone person. These include having adequate substance, deriving qualifying income in a free zone, not having elected to be subject to the standard corporate tax rate, and possessing well-maintained transfer pricing documents and financial statements, among others. 

The Arm’s Length Principle is also an important qualifying condition to become a Qualifying Free Zone Person, along with the de minimis requirement. If any one of these conditions is unmet, that person is automatically held with the standard 9% corporate tax rate. 

Any Free Zone person will cease to be a QFZP if they elect to be subjected to the standard UAE corporate tax rates or if they fail to meet any one of the qualifying conditions. 

Qualifying Income and Qualifying Activities 

Qualifying income of any QFZP in the UAE Free Zones refers to income derived from either transaction with other free zone persons, from ownership or exploitation of any qualifying intellectual property, any other activity meeting the De minimis requirement, or transactions relating to qualifying activities that do not fall under excluded activities. 

Qualifying Activities are those activities that any QFZP can carry out to avail the 0% corporate tax benefits in the UAE Free Zones. These are activities that help to derive income via manufacturing and processing of goods, fund management, financing and leasing of aircraft, and logistics services, among others.

Excluded Activities Related to Corporate Tax in The Free Zones

It is also important to know what kinds of activities are excluded from the 0% corporate tax mandate. These activities include transactions with natural persons, banking activities, and ownership and exploitation of immovable property, among others. 

When these activities are undertaken by any free zone person, the standard 9% corporate tax rates are going to be levied. Note that ancillary activities (any activity that contributes to the performance of the main excluded activity) is also considered an excluded activity. 

You can also read: What are Investment Funds and the Investment Manager as per UAE CT law?

Compliance Requirements

Compliance requirements for any QFZP include, but aren’t limited to, procedures like proper tax registration with the Federal Tax Authority (FTA), maintaining and recording documentation related to the qualifying activities for at least 7 years or as stipulated by the authority, maintaining proper financial statements of audits, and also filing for tax returns. 

For most of these procedures, you can always seek professional assistance from established firms like CDA, which can help you to stay focused on the business activity rather than sweat your head about compliance and tax return filings. 

The Free Zones in the UAE are current hotspots for business and revenue. This is further catalysed by the government’s decision to levy 0% corporate taxes for qualifying Free Zone Persons. For non-qualifying free zone persons, 9% tax rates are applicable. 

It is important to understand the conditions that are applicable for the 0% tax rate to enjoy the best of business in the UAE Free Zones. This is in addition to having the necessary legal and financial documents as well. 

Furthermore, expert financial and tax professionals from CDA can help assist both QFZP and NQFZP with tax-related procedures in the UAE Free Zones. If you are either of the two, drop CDA a call and witness the efficiency firsthand. 

CDA’s Tax Team As Your Assistance

CDA’s expert tax consultants can assist you in determining the tax implications on your business and analysing the compliance framework, thereby reducing the risk of penalties. Our team of experts can also assist you in ascertaining the accurate tax returns and ensuring the payments on time. The tax experts can also provide guidance during any tax audits from the authority. Acquiring the personalized services from our team can enable you to get competitive advantages over your competitors 

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